Although a bit tardy, these data provide the most complete and impartial picture of profits at all store-based retail drugstores, not just the larger public companies. Read on for details and festive charts.THE DATA

Pharmacies and drugstores are classified in NAICS 446110. NAICS (North American Industry Classification System), which replaced the Standard Industrial Classification (SIC) system in 1997. NAICS is the standard used by federal statistical agencies in classifying business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy.

The drugstore data exclude non-pharmacy retail formats (supermarkets and mass merchants) and mail-order pharmacies but include retail revenues from non-prescription front-end sales. For instance, chain drugstores such as CVS (NYSE:CVS) and Walgreen (NYSE:WAG) generate about one-third of their revenues from non-prescription, front-end items. Independent drugstores, meanwhile, generate less than 10% of their revenues from non-prescription sales.

Click here to download the data as an Excel spreadsheet from the Census site. Pharmacies and Drug Stores are on row 20.

MARGIN LEVELS AND TRENDS

The chart below compares the new Census data with comparable data on overall gross margins for the largest three chain drugstores and a sample of independent drugstores. An earlier version of this chart appears as Exhibit 32 in the 2010-11 Economic Report on Retail and Specialty Pharmacies.

Here’s a look at the data over time. As you can see, gross margins at pharmacies and drugstores have remained in the 25% to 26% range during the past ten years. The most recent year (2009) is an unusual departure from trend.

Two caveats:

These data do NOT show gross margins on prescriptions. I estimate that average gross margins from prescription dispensing at retail pharmacies are 20% to 25%. As I discuss in the “Profitability of Brand vs. Generic Prescriptions” section of my pharmacy report, this overall average reflects gross margins of about 5% to 10% for brand-name prescriptions and 50% to 60% for generic prescriptions.

The Census Bureau defines Gross Margin to equal Sales minus Purchases, i.e., cost of goods. This definition does not correspond precisely to definitions used public company accounting reports.

Given these data, one has to wonder why pharmacy owners sound like European football players whenever the topic of gross margins comes up.

Anyway, I hope you enjoy commemorating the Mexican army's unlikely victory over French forces at the Battle of Puebla on May 5, 1862, under the leadership of General Ignacio Zaragoza Seguín. ¡Canta! ¡Baila! ¡Celebra!

11 comments:

Adam, Happy Cinco De Mayo indeed! Great post as well. I'm not a pharmacist but do a bit of consulting for independents and appreciate your insight. As for pharmacy owners sounding like European football players (and currently, NFL players), the problem is multi-faceted.

I have zero actual long-term data, merely anecdotal evidence from the pharmacy owners for whom I've worked. The story I've consistently gotten is that margins have decreased over the past 20 years from the 30's to the 23.8% you alluded to above. I don't always have success in getting this point across, but top line sales have increased substantially as a result of more meds and more of them being covered by the insurance cos. The burden is on the pharmacy owners to see the change in the industry and adjust accordingly, something that is easier said than done in most cases.

While I respect that the margins from CVS/Walgreens are propped up from a higher percentage of non-Rx Sales which typically carry a better margin, the difference between overall GMs of 27.8% or 30% and 23.8% is pretty substantial no matter how you slice it.

Income statement metrics like gross margin percent can be misleading when comparing different product lines because of inventory investment and inventory turnover. It's more appropriate to use GMROI or the earn-and-turn ratio.

I'll discuss the profitability issue next week in my review of the 2011 Fortune 500 data.

I do not have quick access to this series. With the above limitations in mind, is there credible data from Census report that ties this information to inventory turns. The combination gets us closer to a return on investment calculation

Just so I understand, this data is from 2009 right? Or before AWP rollback took full effect. I can assure you that in the two years since 2009, the landscape has changed completely. 2009 might as well be 1979. But hey, in 2009 everything was great so we should all just be quiet now and stop whining like European footballers.

I do not have quick access to this series. With the above limitations in mind, is there credible data from Census report that ties this information to inventory turns. The combination gets us closer to a return on investment calculation

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